Taxes

In case you missed the H&R Block commercials, it’s tax season, err, “refund season.”  And many clients want to know if, in order to “get their billions back,” they should hire a CPA to do their tax return?  The simple answer is there’s no simple answer.  But consider the tiny fine print on H&R Block’s own commercial, which we’ve frozen below.  It says about 80% of people did not financially benefit from having a “professional” prepare their tax return.  If, like most Americans, you worked one job, received a W-2 for it, and had no extraordinary expenses or life events, using tax software produced by H&R Block, or my favorite, TurboTax, will probably work just fine.  On the other hand, if you are a small (or large) business owner, own one or more investment/rental properties, have some other complicating factors, or just plain don’t have the time or inclination to do it, then it may well serve you to pay a professional to prepare your taxes.

HR Block

Regarding prices–  a simple W-2 tax return prepared by a professional will probably cost $150-$250.  A sole proprietor LLC return will probably cost $250-400.  If you’ve got an S-corp, you’re probably looking at $400-700.  And a C-corp will be even higher.  Please note that many of the “storefront” tax prep places you see around town may quote a low initial price but then add on for each “extra” form they find you need as they go along (and I’ve even heard of extra forms being added you don’t need).   If you decide to go this route, be clear on what your final price will be before you get started. And contrast that with TurboTax, which can produce a simple return for anywhere from $35 to absolutely free or one involving a sole proprietor, rental properties or investments all for under $80.

So what do I use?  Last year I decided to put TurboTax to the test.  I used TurboTax to prepare my return, then gave my documents to a CPA.  The CPA did find me an extra $7 dollars, but he gave me a bill for $250 to do it.  While I did like the feeling of confidence and security the CPA gave me, I also like saving $200.

Keep in mind as part of my CFP (Certified Financial Planner) designation, extensive coursework on taxation and the tax code was done, so I’ve got a little bit of a leg up on most.

The Prior Month

January was a month of big swings for the equities markets with two big swings up and three big swings down.  Some factors the markets reacted to included a trillion (yes, a TRILLION) Euro quantitative easing program introduced by the European Central Bank, a victory by the Greek political party Syriza, who aims to lighten the EU bailout load, a continued decline in oil prices- which reached a low point of $43.58 a barrel, and Switzerland removing its longstanding 1.2 Swiss Francs per 1 Euro currency peg (causing massive currency moves).  Meanwhile, back stateside, the unemployment rate rose slightly to 5.7% amid an addition of 257,000 jobs to the U.S. economy in January, interest rates for a 30 year mortgage closed the month at 3.66% and the S&P 500 fell 3.1%.

GreaseGrease Lightning?  Wait, wrong Greece…

This Month

Greece is the word for February.  Will they stay or will they go?  If they do go, the equities markets will almost certainly not like it and we can expect a substantial downward move. Unfortunately, the EU finds itself between a rock and a hard place in this situation.  If they acquiesce to too many of the Greek demands, they know some of the other periphery countries such as Italy and Portugal will be showing up next asking for easier terms on their debt.  However, should they hold their line, Greece may just go ahead and exit the EU- a bad result as well.

Of course Greece is not the only problem across the pond as in the Ukraine renewed escalation of the months old civil war has once again forced leaders to meet and try and hammer out a plan. Our old friend Vlad Putin, who has kept clear of the news lately, will once again will play a large role in the news cycle as he eyes additional concessions.  Even if some type of ceasefire is reached, it seems it’s only a matter of time before Mr. Putin finds a way to break it.

Meanwhile,  the question of how low oil can go will continue to keep financial planners up at night.  Okay, probably not really.  But with oil rig counts already down 25% from their peaks, if prices continue to remain low, we can’t help but wonder if the issue is not one of oversupply but rather one of weak demand– an entirely different problem- and one the market has probably not factored in.

All those negatives now covered, the corporate credit backdrop continues to remain extremely positive meaning any move down in equities should be short-term in nature and likely a buying opportunity.

Angela MerkelGerman Chancellor Angela Merkel has told Greece to put up its dukes. Or is she asking Greece to pick a fist, with one of them holding an “IOU” cancellation note? We just don’t know…

Credit Tip of the Month

Affordability and access to credit is an issue that impacts everyone. Whether you are in the top 1%, or the lower 99, your credit score can impact everything from interest rates you pay on a mortgage, to the cost of your auto insurance, to whether you have to forward a deposit to your utility company before they’ll provide electricity. Credit checks are now even being done on potential job applicants before a hiring decision is made. With that in mind, and because this is an issue I see frequently with clients, we’re going to spend the rest of the year sharing one tip per month to improve your knowledge of how credit works and/or improving your credit score.

To get us started, this tip: Being completely debt free is actually a bad thing (at least when it comes to credit scores). Credit scores are negatively impacted when there is nothing to report. Instead, acquire and use 2-3 credit cards and then pay off the balance at the end of each month. Mixing in a mortgage or student loans can help too, if the interest rate makes sense. Indeed, having different “types” of credit can help your score. No matter the type of credit line, however, always pay your balance in full every month.

Fun Fact

Some robots in Japan have to pay union dues. Seriously. I don’t know how that works…

Have a great February,

Steve Zakelj, CFP®

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